The Benefits of Short-Term Versus Long-Term Investments
If you have a little extra money, you’ll need to decide whether you want to invest in short or long-term investments (or a little of both!). Financial expert Mark J. Aubry describes the difference between investing for the present or the future.
“If you want to earn high returns, be prepared to suffer grievous losses from time to time,” says William Bernstein, author of The Four Pillars of Investing. “And if you want perfect safety, resign yourself to low returns.”
Once you’re comfortable with the difference between long and short-term investments, you’re in a much better position to put your money in the right place for you! Click on The Four Pillars of Investing: Lessons for Building a Winning Portfolio for more tips on investing, and read on for Aubry’s information on short-term versus long-term investments…
The Benefits of Short-Term Versus Long-Term Investments
Long-term investment (investing for the future) allows for the investor to benefit from the expected returns of the market over the long term. Proper investing for the future requires a plan developed from a strategy, based on an investment philosophy.
Long-term investing is betting on the house. Occasionally the gambler will win. That is expected. But the house knows that the winnings it gives out will most likely be placed again on the table, and will eventually belong back to the house.
Short-term investment (investing for the present) relies on a guess; that is, a hope that your market or stock prediction will be correct. When a person is only concerned with the present or short-term, that person is no longer an investor but a speculator.
Short-term investing requires the speculator to take advantage of short-term price movements in securities. The short-term speculator is hostage to market uncertainties and swings. These price fluctuations are as predictable as rolling dice at a craps table in Vegas. Many gamblers are certain that their “system” will prevail where others have failed. Sometimes you do return from Vegas a winner, but that city was not built on speculators winning on a consistent basis. The odds always favor the house.
Read Tips for Picking and Investing in Stocks for guidance on making the right financial choices.
The Difference Between Long and Short-Term Investments
While the short-term investor rides a day-to-day rollercoaster of emotion that depends completely on the direction of the market, the long-term investor can get by with only an occasional glance at daily market returns. The benefit of a long-term investment is that the investor knows that day-to-day fluctuations are expected, and can be viewed as market noise.
Short-term investments remove a powerful factor that consistently works in favor of the investor: Time. Over time, the market produces gains, and these gains are the means in which an individual can build financial security, which is precisely what investing is all about.
If you have any questions or thoughts on investing to build financial security, please comment below! And, if you have made a poor investment, read Tips for Overcoming Bad Investment Decisions.
Mark J. Aubry is the Managing Director of a US-based planning and advisory firm, Aubry & Eustice, which helps clients simplify confusing and overwhelming topics. Through customized and coordinated solutions, the firm helps clients move Beyond Financial Planning.
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